Seniors: No, You Cannot Keep Your Plan, Even If You Like It

Both as a candidate and since taking office, President Obama has repeatedly promised that health care reform will have no downside for people who have health insurance and are satisfied with their plan, and in particular that Medicare for seniors will be protected. He famously said, “If you like your health care plan, you can keep your health care plan.” He has similarly promised to protect Medicare from cuts.

However, the health care reform law the President touted and signed into law does the exact opposite, on both counts. If you like your health plan, you most likely will not be able to keep it – especially if you’re on Medicare. And even if you are one of the lucky few who can keep your health plan, your benefits will be cut so much that it will only be the same plan in name.

The broken promise to America’s seniors comes about mainly through changes to the Medicare Advantage (MA) program. Medicare Advantage is the “private option” within Medicare in which private health insurers are paid a fixed monthly fee to provide at least the same minimum health benefits to their enrollees as “traditional” fee-for-service (FFS) Medicare. However, by delivering care more efficiently, most MA plans offer more benefits, often with lower co-pays and deductibles, and some provide a rebate on the normal Medicare Part B premium. Applicants for MA cannot be rejected, and they pay the same premium regardless of their age, sex, or pre-existing conditions. All Medicare beneficiaries have the right to select any MA plan offered in their area, and about 24 percent take advantage of this option – a percentage that has grown every year, and was projected to increase even further.

Regrettably, changes included in the so-called “Affordable Care Act” drastically cut payments to Medicare Advantage plans starting in 2013, driving many MA plans out of business, and forcing the surviving plans to slash benefits. According to a recent study I wrote with Michael Ramlet, these cuts will cause the beneficiaries in the average county (MA plans are offered on a county-level basis) to lose two-thirds of their MA plan choices by the time the new payment formula is fully phased in in 2017. Surviving MA plans will have to cut health care benefits, increase cost-sharing, or increase premiums (or some combination of these) to stay within the constraints imposed by the payment formula, making the program less beneficial to patients and thus further reducing enrollment.

From the beneficiaries’ perspective, the cuts reduce the level of access to health care services by reducing the value of the MA plans that survive the cuts, and by eliminating desired MA plans, which forces some patients into the FFS system that they otherwise would have rejected. Overall, 50% of beneficiaries (7.4 million people), who would have been in MA plans will transition to the fee-for-service plan which they otherwise would have rejected as insufficient for their needs, and which itself will be the subject of only slightly less drastic cuts. The average beneficiary – considering both those who stay in the stripped-down MA program, and those who transition out of it – will incur an average cut of more than $3,700 in benefits per year by 2017.

The decline in both plan offerings and in enrollment will vary substantially across the country. In Texas, for example, beneficiaries will face an average loss of more than three quarters of plan offerings per county by 2017. Similarly, Louisiana will experience an average county percentage loss of 84% of MA plans by 2017. Lesser impacts are observed in other states, but even Arizona, the state experiencing the least degree of change, will experience an average 57.5% decrease.

There are also regional variations in the enrollment and benefit cuts. The percentage of beneficiaries pushed out of the program ranges from 38 percent in Montana to a 67 percent in Washington, D.C., and 84 percent in Puerto Rico. Average benefit losses range from a low of $2,780 in Montana to a high of $5,092 in Louisiana.

These cuts are substantial, real, and already enacted into law. If you are a Medicare beneficiary who has chosen a Medicare Advantage plan, you will probably not be able to keep it, no matter how much you like your plan. Even if you can keep your plan in name, the plan you like now will be a shell of its former self.

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Your doom and gloom predictions for Medicare Advantage are based on assumptions that may or may not be correct. But first of all, Medicare Advantage has been a gift to insurance companies with overpayments for the plans. So to be fiscally responsible, the overpayments cannot continue.

The PPACA cuts payments to MA plans, but they occur over time rather than in one drastic cut. And now the plans will receive “bonus” payments for improving their quality of service. This will reduce the cuts required by PPACA.

And while you predict an end to Medicare Advantage, Cigna just spent a couple of billion dollars to buy Healthspring, a Medicare Advantage company. Wellpoint recently spent nearly $1 billion on CareMore. Why do you suppose these smart people are buying into a business that is supposed to go out of business?

I’m an insurance broker and I like Medicare Advantage, but some companies (CareMore is an example) have an MLR of just 70 – 75%. If these companies can reduce hospitalization costs through their model of care, those savings should go to Medicare rather than become profit for an insurance company.

PPACA requires MA plans to be more than claims processors making profits by raising co-pays every year. If MA plans truly become “managed care” organizations, they might be the right model for cutting Medicare costs. CareMore is a very good example of this. And a company like CareMore can withstand lower payments from Medicare – and that is the future for Medicare Advantage.

This really starts hitting the bottom line as so many Medicare Advantage plans have made so much money for insurers, they are still being acquired but understand when the cuts begin profit margins will change.

It just makes one wonder again how long current models coupled with paying shareholders will be around at times?

The healthcare law, when it was passed laid out a framework but as economic times have drastically changed, that needs to change too so time for some digital laws that can change with the times? As you wrote, insurers are changing their algorithms as to what coverage will be available and for who, so what do you do with a law that needs some amendments and soon?

Do we sit around and call “fail” on the work that was good at the time or do we get smart and revisit and make changes? It’s kind of silly to see how all expect the law to stay as it is when you have an entire world changing around you daily.

This is the old antiquated thinking that a law can be effective with no modifications for years, a sign of the times as to what type of folks are serving in Congress today, the digital illiterates that ten to sit around and discuss abortions when things get over their heads:)

Actually I sad the Supreme Court has time to rent some big data computing space from the DOE to get all their data together to make a ruling and recommendations. DOE has the 3rd fastest computer in the world and does rent out space, i.e. the NIH. For something this important I would guess they would make room to run all the big data analytics so we can avoid some of the unintentional consequences of a less informed decision?

So again, when casting stones all over with the constant witch hunts to somehow prove that someone was “bad” or wrote a “bad” law” we are left with not much more than digital illiterates who cannot find their way out of denial I feel and are out of touch as we all suffer one way or another due to that fact. Here’s what the DOE has and again we need big data capabilities to pass complex laws today.

Med Advantage plans benefitted from the Medicare Modernization Act of 2003 that pegged payment rates at 114% of Original Medicare costs on average, so trimming back to closer to 100% makes some sense. However, this adjustment is different from historical swings in payment rates to private Medicare plans like the changes embodied in the Balanced Budget Act of 1997.

In the “old days”, TEFRA Risk plans were paid at 95% of the FFS costs and were financial winners until the BBA upset the parade of profits. Some say that plans avoided sicker members and tended to market to healthier people. These days, MA plans are paid on a risk-adjusted basis, accounting for the burden of illness. Quality bonuses get paid based upon HEDIS, CAHPS, HOS and compliance performance measures. Those are game changers.

Going forward, the new reduced payment rates to MA plans are offset in part by quality bonuses for taking good care of members. Lesser quality MA plans will suffer the fate of under-funding and financial starvation, true enough. But the Darwinist competition shifts from whose clever strategies to manipulate the system are more successful to a transparent battle based on member satisfaction, improved individual health and population health scores.

No one argues that differences in regional CMS payment rates are particularly understandable. However, the take-backs from Med Adv plans in the Accountable Care Act bucket every geographic market into one of four categories, based on how far off their current payment rates are from FFS Medicare. Then the phased reductions get paced differently, between 2 and 6 years.

I agree the President overpromised to seniors on their ability to maintain their plan — you can’t cut $135B out of any Federal program and expect it to have no impact on its beneficiaries. However, your projection of dramatic changes in Medicare Advantage plan offerings is excessively dire. Most Medicare Advantage plans won’t change much at all over the next several years because the plans are now dependent on Medicare and are adapting just fine to the cuts. You don’t see that adaptation in wonky reports like from MedPAC or CBO, but we see it daily in the field as consultants to these plans. We are NOT about to see another exodus from the program as we did in the late 1990s.

Predictions of the death of MA are premature. We got confirmation from the Medicare agency last month: MA premiums will fall another 4% in 2012, and enrollment will grow by a brisk 10%. This after a robust 2011 where we think the annual enrollment period will close in December with MA enrollment up over 8% vs. 2010.

The plans aren’t going anywhere for several reasons — and neither will the growing numbers of beneficiaries who recognize the superior value many of these plans provide.

First, government programs (Medicare and Medicaid in particular) are the only segments of the insured that are growing. The commercial market is in the tank. As noted earlier, MA enrollment will grow over 8% this year, topping 12.5 million beneficiaries. Medicare Part D is approaching 20 million enrollees. Just this week Cigna announced it’s spending over $3 Billion to acquire HealthSpring, a pure-play MA plan. Why? To be better positioned for the continued growth in MA, not its decline.

Second, publicly-traded companies like MA leaders Humana and United are now dependent on Medicare, deriving twice their earnings from the program than they did a decade ago (average publicly-traded health plan earnings from Medicare in 1999: 13%; today, 26%, with some like HealthSpring and Universal American over 70%.) Bottom line: the big boys ain’t going anywhere. We might see some breakage among smaller local players who can’t adapt quickly enough, but that won’t affect even a few hundred thousand beneficiaries nationally.

Third, over 40% of beneficiaries aging into Medicare have enrolled in MA plans the last two years, indicating the Boomers are a much more plan-friendly population than the World War II generation given managed care trends in the commercial market (HMOs, PPOs and POS plans represent more than 90% of all insured Americans).

Fourth, and most importantly, market-leading plans are adapting to the health reform cuts by focusing on the government’s “Star Ratings” quality bonuses, mastering risk adjustment (the system whereby the government pays these plans more for taking care of sicker people), and intense management of the 5% of Medicare beneficiaries who account for 65-70% of costs.

It’s working. MA plan Star Ratings are improving year-over-year and with them bonus payments and rebates in the bidding process with the government that enable plans to hold the line on benefits and premiums, and maintain the attractiveness of these products vs. Medigap or traditional Medicare. By scoring 3 stars out of 5 on the ratings a plan gets a 3% bonus, effectively offsetting the health reform cuts alone. Risk adjustment, when managed properly, is also more than enough to offset the health reform cuts. Taken together, Stars and risk adjustment put these plans well into the black. And to top it off, complex case management for the sickest members resulted in lower medical expense ratios for most of the major Medicare plans this year.

As long as the Congressional deficit Super-Committee doesn’t fire another broadside at MA plan payment rates this fall, 2012 is shaping up to be a VERY good year, and I’d venture an estimate of over 15 million beneficiaries in these MA plans by the end of 2015.

Forbes shouldn’t scream “fire!” in the crowded theater that is Medicare these days — seniors are scared enough. And this is a weak argument with no basis in the real world with which to try to score cheap political points against Obama. Just sayin.’